Exam 16: Stabilization in an Integrated World Economy

The real business cycle theory

The term for a pattern of initially sluggish adjustment of the equilibrium price level to a change in aggregate demand followed by a greater adjustment in the future is

When the economy is operating at a level of real GDP that is greater than its potential level, we know that

-Refer to the above figure. Suppose the economy is in long-run equilibrium at point A, and the government initiates an expansionary monetary policy to increase aggregate demand. Which of the following is a TRUE statement concerning the differences between what happens when the central bank action is unanticipated and when it is anticipated?

Policy making that is carried out in response to a rule is

According to the policy irrelevance proposition, real Gross Domestic Product (GDP)is determined by

The trade-off between unemployment and inflation is known as

The Fed initiates a contractionary monetary policy that is correctly anticipated by economic agents in the economy. The result is

Suppose the economy has been experiencing zero inflation and 5 percent unemployment for several years. The government decides to lower the unemployment by generating some inflation. Using a graph, show what the short-run effects would be and what would happen in the long run. What would the government have to do to keep the unemployment rate at 3 percent?

Which of the following is the rate of unemployment that occurs after all adjustments in the labor market have occurred?

A key implication of the policy irrelevance proposition is that

In the aggregate supply-aggregate demand model, if every person in the economy correctly anticipates the inflation rate, the unemployment rate will

According to the rational expectations hypothesis, an individual's assessment of future economic performance

When the economy is at its natural rate of unemployment,

New Keynesian inflation dynamics predicts that an increase in aggregate demand will generate, in chronological order

If people do not always make the same mistakes when forecasting the future, then

The Federal Reserve is anticipating a contractionary period in the economy. The Fed decides to engage in open market operations to stimulate the economy. This action is

Which of the following holds that business cycles are primarily due to changes in technology and does not invoke any monetary or demand-side forces?

The hypothesis that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is the basis of the

Which of the following scenarios can be classified as passive policy making?